Sep 21, 2014
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August 2014 Archive for The Hueber Report

RSS By: Dan Hueber

The Hueber Report is a grain marketing advisory service and brokerage firm that places the highest importance on risk management and profitable farming.

Weekend Commentary - Dangerous Ratios

Aug 29, 2014


You would have thought that the most newsworthy event in Washington this week was the shade of suit that Obama wore at a press conference. While tan in not a color you often see on a President, it probably was not worth the amount of blog posts and other fashion advice that it generated.  Outside of that, most of the attention was centered on the Russia/Ukraine situation and ISIS; but believe it or not, there was actually a spot of positive economic news in the mix.  The second quarter GDP was released by the Commerce Department and, low and behold, it would appear that we have shaken off the winter blues.  After the dismally negative 2.1% number posted for the first quarter, our economy grew a solid 4.2% during the second three months of the year.  Additionally, this growth came across all sectors not just with a boost in inventories, and corporate profits appear to be soaring. Contrast this with the EU who could possibly be sliding into recession once again.

While this as well as the job growth provide us with much to be thankful for, it can also blind us to two very import elements and the long-term ramifications.  First, how many trillions of dollars of public money has it required to finally jump-start this economy? Secondly, while I do not have the exact figures as to what TARP and the QE programs have cost, a glance at the ongoing escalation in the Federal debt load looks anything but encouraging.  Granted, Federal debt began to rise soon after 1980, moving from around $1 trillion to $6 trillion over the next 20 years. But since the Great Recession, we have seen this number escalate from less than $10 trillion to closing in on $18 trillion this coming year.   Herein lies one of the fallacies of deficit spending at the public level; in theory, it is a useful tool to stimulate an underperforming economy or stem a decline, but in reality, a politician is never going to take away money he or she has doled out, at least not if they want to be reelected. Furthermore, if this money is in the form of social programs that are not reformed within the context of the demographics of the country, such as Social Security and Medicare and Medicaid, the drain on the finances just continues to compound.

The second element or ill-effect is related to the amount of debt we continue to accumulate as a percentage of the overall economy and this seems to be the factor that has been brushed aside as the economy has improved over the last few years.  The theory is that as the economy expands, the debt as a percentage of the whole will become less significant so the deficient spending becomes irrelevant.  The pace of deficit spending has slowed down, and we hear discussion about how the continued low interest rates have been such a benefit to slow this down, but who on earth believes interest rates can remain here for an extended period? Even at current rates, the Congressional Budget Office estimates that just the interest to service the debt will reach $799 billion dollars within a decade.  Compounding this issue, no pun intended, is that from 2018 forward, the drain coming the baby boom generation will accelerate.  Some will argue that the number to watch is the Federal Debt held by the public as a percentage of GDP, which is closing in on 75%, is the key number to watch; others believe it is the total federal debt as a percentage, which is already above the 100% mark. Regardless of which number is watched, each have climbed a near linear path since 2009 and historical research tells us it is when we have pushed beyond that 100% threshold that the debt becomes a serious drag on the economy. Japan has existed with a debt to GDP ration in excess of 200% for years now and should provide living proof, for, as outside of a temporary spurt here or there, their economy has been flat lining.  

So by all means, we should celebrate the growth we have posted in this most recent quarter. But soon, the politicians will begin crowing about the fantastic things they have accomplished to turn our economy around. Let’s not forget to remind them that they have still done nothing to confront the real long-term issues that our children, grandchildren and possibly even great-grandchildren will need to confront in the decades ahead.

Chicken Little Scenario?

Aug 29, 2014



Usually when I get up in the morning I will check the electronic versions of a couple newspapers to see what we could be greeted with in the markets. When I clicked on the Wall Street Journal this morning, the first headline that I saw stated "Russia Invades Ukraine."  That has since been replaced with a "Putin Lashes Out at Kiev" and while that still suggests a situation in flux with tensions running high it is certainly something less than an invasion.  As you can imagine my first reaction was to think that this must have really touched off buying in the wheat market but upon looking at the CME quotes, I found that was really not the case either.  Prices were higher but certainly not any kind of panic short covering.  Could we have a "Chicken Little" scenario here where the trade has heard predictions about possible invasions and disruption of shipping in the Black Sea so often that they have become somewhat jaded to the news?

All that said, as I have commented recently the wheat market appears to have been in a foundation-building pattern for the past 7 to 8 weeks and we are now pressing to and through what has been solid resistance zones.  I would suspect that with the long weekend ahead of us and uncertainty around the world, not only with Russia/Ukraine but also the ongoing dryness in Australia, we could see additional short covering into the close.  If correct and particularly if we can finish above the 5.71/5.72 level in December futures we should have room for additional strength after the weekend.  Keep in perspective though, US wheat is already not competitive for most would-be buyers and forcing prices higher would not help that in the least bit.  I suspect the most we could look for without a "real" problem developing would be another 20 cents or so to the upside. 


Yesterday the corn market was able to ride higher on the coat tails of the wheat market but we must have hit a bump along the road last night and fallen off as that strength has not been able to carry-through into this morning.   The rally did manage to push December futures back against resistance at the 3.70 mark but with the fundamental picture looking overwhelmingly bearish, we are going to need something more than wheat short covering to lift corn prices higher.

Rains are expected to continue falling across much of the upper Midwest through the weekend, which should weigh on prices through the balance of the day.  Markets do close at the normal time today but will not reopen until Tuesday morning so it is difficult to expect much in the way of new positions outside of some possible weekend pre-hedging from the south. Yield reports from the southern states continue to be outstanding and while that by no means assures the same once the harvest pushes north, the trade will likely assume that to be the case.

As I commented yesterday, there is a seasonal tendency for the corn market to turn south after the Labor Day weekend, particularly in large crop years and without and unexpected event; that would appear likely for this season.  There is a possibility that prices could remain range-bound into the September 11th report but I suspect that as private estimates and guesses begin to roll in ahead of that number, it will become increasingly difficult for the foundation to hold. 


November beans have been able to build a touch on the strength that was posted yesterday but at this point have only been able to almost reach back against last weeks lows at 10.35.  I guess in light generally good weather that we have experienced during the month of August it is a victory of sorts that prices have not fallen further but at current levels, we will still have given up around 60 cents and will be trading at the lowest level for a November contract since September 2010. 

As we witnessed again yesterday morning on the sales report, China continues to be a large purchaser of new beans and this along with the ongoing tight nearby situation would appear be helping this market from really pushing over the edge.  Realistically, we may not see that happen at least until we have a better handle in the next South American crop.  China most specifically has just experienced two quite challenging years of bean imports with logistical and well as monetary issues creating problems.  I believe this has somewhat masked the reality that world ending stocks of beans have continued to grow for the past four years and are projected to set a new record in both raw quantity and when measured as a stocks to usage ratio.  Without a problem in the Southern Hemisphere this season, I cannot help but think this large supply will come to roost on bean prices.

As with corn and wheat, I would not look for much fresh trade today but if we have not developed any new problems through this long weekend, it would appear we could have a difficult time holding above the 10 level for much longer.


How long can you hold those arms out there?

Aug 28, 2014



It should come as a surprise to no one but tensions and fighting have increased once again in Ukraine and helped spur buying overnight in the wheat market.  Kiev has claimed that Russian troops have entered their territory and captured several villages but other news reports that I have read indicate this has been a counter offensive by the separatists.  Regardless, with the trade already quite short in this market and a long weekend looming ahead it has been enough to entice some of the bears to the sidelines.

Also providing a little support this morning is a short-term dry forecast in the wheat growing regions of Australia.  Unless we see the longer-range forecasts change this should have little effect on their crop prospects but when you add this to the other concerns from the Black Sea region, some traders will opt to error to the cautious side. 

On the other side of the ledger is Russia.  Granted, they play significantly into the situation with Ukraine but estimates for their crop potential continue to grow.  More analysts are joining the crowd that believes the total wheat crop will be in excess of 60 MMT.  The last USDA report has them at 59.

Wheat exports sales were uneventful and right in the middle of trade expectations at 403,600 MT or 14.8 million bushels.  The top purchasers were Brazil at 94k MT, Nigeria at 93.7k MT and Japan at 89k MT.

The initial strength overnight in the wheat did push us into key overhead resistance but prices have cooled as we came into the daylight.  As I have commented previously, I believe wheat has absorbed and priced in much of the negative supply information and with the speculative trade leaning to the short side, we could be poised for corrective rallies at anytime.  I am not sure if the current news is enough to stimulate an extended run but will be watching closely to see if we can actually poke through the upper side of the range after the long weekend ahead.  


The corn market has experienced a little two-sided action overnight and remains in a holding pattern.  This very well could extend through the upcoming long-weekend but I expect to see us move out of the range after that and they way things stack up right now, it is difficult to imagine that being to the upper side.  Early yield reports out of the south continue to be outstanding and it I have to imagine the trade will begin factoring in higher yields as we work out to the September 11th crop production and supply/demand estimates. 

As we are right on the cusp of wrapping up the end of the marketing year, exports sales for this crop year reflect a balancing between old and new.  As such, we registered a negative 32,700 MT or -1.3 million bushels.  This places year to date sales at 1.9155 billion bushels, just below the targeted 1.92 billion.  Sales for the 2014/15-crop year were towards the upper end of the estimates but nothing to write home about at 695,600 MT or 27.4 million bushels.  Top purchasers were Columbia at 140.9k MT, South Korea at 125k MT and Costa Rica with 120.5k MT. 

With the temperature forecast for the next 30 days predicting normal to above normal temperatures, little happening in the export scene, funds still long in the corn and promising early yield reports, it would seem that it will be increasingly difficult to see corn continue to hold this sideways pattern.  I just saw a yield update out of central Illinois reporting a range of 230 to 270 b/p/a.  As my associate Jake Wiener likes to say, the longer you have to hold your arms outstretched, the more likely you are to be come fatigued and eventually have to let them drop. Without a little assistance to prop up the arms of this corn market, they could soon give out. 


The pattern in the bean market since July has been to drop into lower lows and then just track a bit sideways for a bit before grinding lower once again.  That appears to be the case this past week as November futures pushed through 10.35 and reached the 10.20 level only to move flat from there.  The bean bull has never given up easily this year. 

For the second week in a row and of course the second to last week of the marketing year, we posted a negative sales number for the 2013/14 crop.  This time the number was -62,800 MT or -2.3 million bushels.  This still leaves us with sales of 1.691 billion bushels, which is 51 million above the USDA target.  2014/15 sales were down 9% for the week but still solid at 1,290,800 MT or 47.4 million bushels.  Just over 50% of these sales were to China who took 655k MT followed by Vietnam at 112.2k MT and unknown destinations at 96k MT.

As with the corn market, with no serious weather threats on the horizon, increasing harvest activity and very solid yield estimates it is difficult to imagine that we will not see prices erode further as we move into the month of September.  That said, after spending more than 35 years in this business I know that when everything looks obvious and one-sided it is time to be in the lookout for an unexpected event so you are not blindsided. That said as it stands right now, the path of lease resistance remains lower. 

How long can the floor hold this weight?

Aug 27, 2014



It seems that I am having to scratch a little harder each day to uncover fresh news for the markets.  As expected the Egyptian wheat tender went to Russia and Romania with no U.S. wheat even offered due to the fact we would not have been competitive anyway.  Wet conditions continue to hamper harvest of the spring crop but at this point, the market does not appear to be overly concerned.  On the opposite side of the world, Australia has continued to see increased rainfall which has improved crop prospects "down under" with trade estimate for production in the 23 to 27 MMT range compared with the last USDA number of 26.  Seeing this falls within existing numbers would say that it is not bearish per se but after the El Nino hype earlier this year and what has been drier than normal conditions, it removes a possible stimulus.  ABARE, who is the Australian counterpart to the USDA will release estimates on the 8th of September. 

Wheat was able to bounce away from base support once again yesterday, possibly aided by increased tensions and a few rumor again from Ukraine but that momentum has waned quickly this morning.   As I commented yesterday, there remains a possibility that we could see prices dip into lower lows in the days ahead but I would not expect a new leg lower.  For now I look for additional sideways activity.


Even though we were able to bounce away from support again yesterday, the corn market struggles and it would appear that it is only a matter of time before the impending harvest forces us into lower lows.  If there were any dry pockets in the upper Midwest it would appear they have pretty been eliminated or at least will be over the next 7 days and in parts of Iowa, Minnesota and Wisconsin, it would appear that we have swung the pendulum completely in the other direction.  While that could ultimately delay the maturity of the crop and could even hamper early harvest activity, it is always challenging to get markets overly excited about too much rain at any time of the year. 

While many southern states have been turning to beans to capture the nearby premium, corn harvest has been making progress.  As of last weekend it was estimated that Texas was 46% complete, Georgia 56%, Louisiana 38% and Mississippi 20% with a few others registering in the 1 to 10% range.  I wish I could provide solid yield data at this point but only have partial information.  That said, the numbers we continue to hear are impressive. 

The weekly ethanol number will be released later this morning and should be continue to remain solid with the profitability in the industry.

I am somewhat surprised and mildly impressed that the corn market has been able to hold on a well as it has to this point but as I commented initially, it would appear to only be a matter of time before the floor give way to the weight of record production.  We may be able to hold ground into the long weekend, but if nothing bullish materializes before next week, that should become increasingly difficulty to do.     


As with corn and wheat, beans were able to bounce from the early pressure yesterday and actually extended a little higher this morning but the onset of harvest and some exception bean yield reports has pretty well taken all the wind from the sails.  A few weeks ago I had heard reports that in the Delta, some beans were measuring near 100 b/p/a and I read overnight that 400 acres harvested in Mississippi came across the scale at 96 b/p/a.  Incredible. 

The possible counterbalance to this has been reports of Sudden Death Syndrome showing up in Indiana and Illinois. 

We have seen November beans reach the upper end of our price target at 10.20 and price could stabilize now into the long weekend.  Regardless, unless weather really take a turn for the worse and brings harvest to a halt, I suspect we will head down to at least the lower targets at 9.80 in September.


Bulls have to contend with a starvation diet

Aug 26, 2014



We have defensive overnight trade across the floor but understandably wheat appears to be the least impacted.  As I have noted previously, wheat should have already factored in much of the supply situation, at least on the domestic front, into current price levels but still lacks a demand stimulus to move us away from this base.  We do know that Egypt has set a tender for an unspecified amount for shipment between September 21st and 30th but in all likelihood, this will be filled from the Black Sea and/or Europe. 

There is a slight concern about the recent wet weather across the northern plains states and Canada hampering wheat harvest but the most recent updates do promise a drier pattern.  While conditions remain solid albeit slightly lower at 66% good to excellent as of the 24th, spring wheat harvest stood at only 27% complete compared with an average of 49% and even last year at 39%. 

Export inspections have been consistent over the past several weeks and last week we shipped 20.5 million bushels.  This is slightly ahead of the 10-week average of 17.8 million and brings the year to date total up to 210.88 million bushels.  To reach the USDA target of 925 million will now need to post a weekly average of 17.9 million bushels. 

I did read overnight that France may be shopping around for good quality wheat to blend with the moisture damaged crop they are dealing with this year.  While that does not change the overall supply situation around the world, and could very well come from Russia, it could provide a much needed demand spark for this market.


While still holding the 5-week base, corn was under pressure yesterday and has been again overnight with very little news to provide support. Recent moisture has turned excessive in some areas of the upper Midwest but any damage in low-lying areas would have occurred long ago so the benefits far outweigh any problems.  The trade should now be completely focused on the finishing touches of this crop with ideas of early frost fading quickly.

The weekly crop conditions showed improvement with all the recent moisture and the good/excellent categories actually picked up 1% and stand at 74% good/excellent. This is the best rating for this time of year since 1994 and normally, we would have already been seeing these numbers slip as the crop begins to mature.  Corn in the dough stage is slightly ahead of normal at 83% compared with the normal 78% but corn denting is 8% behind average at 35%.  Regardless, the trade will be fully expecting the yield numbers on the August and possibly the October reports to continue to move higher and I expect soon after the Labor Day weekend that will again be the topic du jour.  Dr. Cordonnier raised his corn estimate to 170 b/p/a yesterday. 

Corn exports were better than expectations, coming in at 43 million bushels.  This brings the year to date inspections up to 1.809 billion bushel with one week to go.  We will need to wait for the census number to determine how close we are to the 1.92 billion bushels target. 

Early yield reports in the south have been sparse, as it would appear farmers have attacked beans first to try and capture the inverse market and current premiums.  Reports out of Texas though, just say yields have been exceptional.

I suspect the corn market could stumble and bumble through the balance of this week traders may be reluctant to enter new positions in front of the end of the month and a long weekend.  That said, if we have found nothing positive to work with by the time trade starts again then in September, you have to believe the path of least resistance will be lower. 


As I commented under corn, we do have a little harvest activity kicking in to the south as farmers try and capture the inverse premium for nearby values.  Mississippi reports 2% harvested and Texas 8% and while yield numbers are sketchy, there have been reports of 70+.  Cordonnier raised his U.S. bean estimate ½ bushel yesterday to 45.5 which basically just keeps him at the same level as the USDA and the Pro Farmer tour. 

Bean rating slipped 1% last week but remain at a solid 70% good/excellent and like corn are at the highest rating for this time of year since 1994.  Beans setting pods climbed 7% to 90% leaving us 1% ahead of the normal pace.

We are just about to close out a very interesting to say the least, marketing year and we posted comparatively decent export sales for this next to the last week.  The total loaded was 5.3 million bushels, which compares with the 10-week average of 3.3 million and brings the year to date tally up to 1.593 billion bushels. We do not have to look back too many months and the debate was over if there would actually have been enough beans to make it until new crop arrives.  As I have stated many time before, when you know about a problem long-enough in advance there will most likely never be a problem.  That is exactly how a free market is supposed to function. 

While still quite grudgingly, November beans keep chipping away into lower ground and this morning we are finally reaching down to the upper end of the gap targets at the 10.20 level.  I continue to believe we should see this market settle out between 10.20 and 9.80 but could then move into a new congestion pattern at this price range. 


How long can the floor hold?

Aug 25, 2014



While many of you may have missed it last evening, there were technical issues at the CME and the overnight trade was suspended for four hours.  Actually, that may be better stated that the open of trade was delayed four hours (two for the grains).  It would appear that everything is operating normal at this point but you can imagine that it made for an uncomfortable 240 minutes for the hedgers around the world who needed to lay off risk. 

The wheat market has since witnessed a little two-sided action as we begin the week but appears to be semi-supportive.  Once again we find little fresh news with most of the stories I have read centering around the quality issues plaguing European and Ukraine wheat.  Ultimately this could provide an issue for millers in Europe and elsewhere but the biggest impact will most likely be felt in the corn market as we are confronted with a competitive feed product just when the world stocks of corn are climbing. 

The wheat market has been developing a congestion zone for the past 7 weeks now but has done nothing as of yet to suggest we are ready to move out of the range.  It would appear the biggest drag on this market right now is corn and the impending harvest of a record crop.  If wheat is to compete around the world as a feed grain, it will need to remain competitive in price to corn.  Longer term indicators are turning more positive though so it would appear that at least the worst of the pressure is out of the way for now. 


While there is undoubtedly a few dry pockets yet, it would appear that the majority of the corn belt received moisture over the past week.  It would seem that the only bullet that bulls may have left in the gun would be for the potential for an early frost.  I understand temperatures in Canada did press down against the freezing mark over the weekend and that the lower 48 will cool off again later this week but that does not constitute a killing freeze.  We had Drew Lerner of World Weather speak at our annual outlook meeting last week and at this point, he suggests that the region that could be at risk for an early frost would be more towards the middle latitudes of the growing region.  The Northern Plains and upper Midwestern states where we experienced delays this past spring are expected to see normal to later than normal frost dates. 

The Pro Farmer tour wrapped up last Friday and the tallies for corn were a bit higher than the USDA.  The average yield was estimated at 169.3 b/p/a producing a crop of 14.093 billion bushels.  If you recall, the August government estimate was 167.4 and 14.03 billion. 

As I mentioned under wheat, the quality issues with European and Ukraine wheat will most likely hang on the corn market in the weeks and months ahead.  Europe is already accustomed to feeding wheat but some of our traditional corn customers could easily be lured into doing the same this year.  Currently Black Sea wheat delivered into Asia costs around $240 a metric tonne compared with U.S. corn at $220.  While that would appear to give the competitive advantage to corn, keep in perspective that on average the protein level of wheat is 3% or so higher than corn so the price spread is probably closer to $233 vs. $220. 

Weekly export inspections should not hold any surprises nor should the weekly crop conditions/progress reports later today.  It is somewhat impressive that we have seen December corn remain in this 3.80/3.60 trading range for the past 5 weeks but with harvest already started in the south and the balance looming just around the corner, it would seem the odds are stacked against the potential to hold here indefinitely.  We should have additional yield data from some southern states in the state-by-state reports this evening.  There have already been reports of 180 to 200 corn coming from areas that have never dreamed of such yields. 


It seems agonizingly slow but new crop beans continue to chip away at the downside.  Overnight we have pressed into a slightly lower low for November futures making this the 4th week in a row in which we have been able to do so.  With the recent moisture that has passed through the majority of the Midwest, it is difficult for a bull to find much to shore up their cause. 

The Pro Farmer tour tally came in just a smidgen below the USDA.  They uncovered a yield of 45.35 b/p/a for production of 3.812 billion versus the government at 45.4 and 3.82 billion.  Regardless, these are still both record numbers.   I am not sure if we will find many yield numbers from the south as of yet but we have heard estimate from some calling for 100 bushels beans. 

This market continue to die a slow death and while percentage wise, I do not believe we have a tremendous amount of downside potential, possibly 6 to 10% in price, it will then become dependent on what happens in South America for the next move.  Another big crop down there and the picture turns decidedly unfriendly.

Weekend Commentary - Fed's Next Move

Aug 23, 2014


I cannot believe that it has happened again!  While I accepted the excuse that my invitation to the annual World Economic Summit held in Davos Switzerland must have gotten crossed in the mail, and late January is a difficult time for me to get away anyhow. But this is the final straw.  This week, the Kansas City Federal Reserve is hosting its annual economic conference in Jackson Hole, Wyoming and evidently someone slipped again and my invitation did not arrive.  I am beginning to feel like this is not an unintentional oversight.  Though often this kind of event is nothing more than dry conversations presented by even drier academics, but the Jackson Hole event does have a history of providing a few surprises.  It was here in 2010 and again in 2012 that Ben Bernanke announced the strategy for Quantitative Easing.  Possibly even more earth shattering than that was back at the 2005 conference when Raghuram Rajan, economist from the University of Chicago, did the unthinkable; he blasphemed the most high, Alan Greenspan.  At the event, which was realistically a farewell party for Greenspan, Dr. Rajan presented a paper that questioned the fiscal policies of the then Fed Chairman and suggested that they could actually be making the financial world "riskier" and could lead to a speculative bubble.  The nerve!  He was roundly criticized by leading economists of the day and labeled as misguided and a luddite.  Whoops. 

While there was no such name-calling or controversies at this year’s meeting, there was considerable discussion and debate as to when the Federal Reserve would begin raising interest rates.  As we are well aware, the Fed Funds rates have realistically not moved higher since June of 2006 and have effectively been at zero since the fourth quarter 2008.   We already know that the Fed does intend to begin raising rate sometime after October when the bond-buying program has been completely tapered; it is just a question as to how much longer after.  The most dovish members of the committee, including chairperson Yellen, maintain that the employment situation is still very tenuous and that rates will not likely move higher until late in 2015. The hawks appear to be pushing for a move possibly in the 1st quarter.   

By no means do I profess to be an economist and certainly do not understand the intricacies of that science the way the trained professionals of the world do, but from an arms length perspective, it would seem that to perfectly micro-manage and time such as move, with an over $17 trillion economy, is impossible.  Unlike Europe, we appear to be growing slowly, but surely, are consistently generating an increasing number of jobs and have been rebuilding consumer confidence. So why are we waiting?  The doves might ask what it hurts to wait a little longer. Oh, I don’t know, maybe the risk of unwarranted speculation creating artificially inflated assets that could create additional bubble in markets.  Certainly nothing that hasn’t caused problems before.  For now we will have wait and watch for more signs.  The next FOMC meeting will be held the 17th and 18th of September so there will be at least a few weeks before we might find a shift in policy and a definitive date for when that will happen.

Looking out a bit longer term, just in case anyone from the Fed happens to be reading this, know that I am willing to forgive the oversight on my invitation one more time and I will make sure my schedule remain open for next August.  I will plan to have my fly-fishing gear packed and ready to go.

Was that a first step?

Aug 22, 2014



We have all heard the old Chinese proverb about a journey of a thousand miles beginning with a single step.  While I am not sure yet if this will qualify but the wheat market did appear to take a baby step forward yesterday and has scooted just a bit higher overnight so we could be close to starting a trip in a new direction.  We should not discount the reductions projected in the Canadian wheat numbers yesterday as if correct, while small in the overall scheme of things, it is those types of subtle changes that help to slowly turn the rudder. Even if correct, I suspect we have weeks of additional sideways trade in store. 

There is very little other fresh news for the wheat harvest at this point.  We can rehash the ongoing harvest and quality issues in Europe, the better than expected crops in Ukraine and especially Russia and of course the competitive position of the Black Sea market but realistically we have been discussing them for so long, you have to believe this information has been well absorbed into the price structure.  The impending domestic corn and bean harvests should at least psychologically weight this market and I suspect we will remain range bound until we can uncover a new story to talk about.


While the final numbers will be issued later today, the corn market does appear to have found a little support from the Pro Farmer findings in Iowa.  Their estimate places the state yield at 178.8 compared with the July USDA figure of 185.  Of course that had Minnesota at a solid 170.8 and Illinois at 196.96 but the bigger surprise for many was that Iowa figure.  While not a game changer by any means, it does shake the confidence of the bears just a touch and has help buoy prices for the end of the week.  Unless we have pushed up to 3.77 for the close this will still be a lower week and well off the high from Monday at 3.81 but in face of what has been good rains across the upper Midwest and what appear to be a promising forecast to finish off crop development, having not pushed into lower lows is a victory of sorts for the bulls. 

Corn has been in a sideways pattern for five weeks now, which is a longer congestion pattern than any time since prices turned lower back in the spring.  While that can sometimes be indicative of a change in trend, I am not prepared to jump on that bandwagon just yet.  As we have discussed previously, big crops tend to become bigger on succeeding reports and tendency is to record lows late in the year when that is the case.  Accordingly, I continue to believe we have potential for a 5th and final swing lower but that should begin sometime between the beginning of next week and Labor Day.  As I discussed at our outlook meeting this past week, I would not look at another push lower with despair but rather as a potential opportunity to set the stage for the swings into next year. 

For now, I expect overhead resistance to remain very tough against the 3.75/3.80 zone and without a surprise event, a level that would be difficult to violate.  As such, I intend to use rallies into that range for sales. 


For the past few days November beans have tried to stand their ground during the day only to surrender into the close and post lower lows.  By no means is the pressure significant but lower lows and lower highs define a bear market and while somewhat still grudgingly, that is what we are dealing with.

The bigger surprise is that with the yield reports estimates, the pressure has not been just a little more intense.  As I mentioned previously, the Pro Farmer tallies will be released later today and it would appear that pods counts for the majority of the areas covered have been very strong.  Could this year be the "perfect storm" of conditions, no pun intended, where we set a major watermark for bean yield in addition to an enormous acreage number?  While I am not qualified to answer that question, without a weather issue in the next few weeks, the potential certainly appears to be there. 

I continue to believe that November futures are headed down into the 10.20 to 9.80-target range between now and the beginning of harvest.


Did the rain fall in all the right places?

Aug 21, 2014



We have a rain moving across the upper plains states into Minnesota, Wisconsin and into Northern Illinois this morning providing a nice drink to finish crop development in those areas.  It would appear that even north and northeastern Iowa is experiencing moisture overnight which is an area that has seen little precipitation over the last 30 days.  

The overall news is sparse again this morning with the biggest story at the moment being export sales and for wheat at least, it is difficult to use the word "big."  For the week ending August 14th we sold 209,200 MT of wheat or 7.69 million bushels.  This number was down 38% from the previous week and was 62% below the 4-week average.  The largest purchasers were the Philippines at 83.5k MT, Nigeria at 62.4k MT and Japan with 34.6k MT.  This brings the year to date sales up to 396,201,750 bushels, which lags the pace for this time last year by 26%. As we have noted numerous times, right now the Black Sea is the place to go for wheat. 

Stats Canada released updated production estimates this morning with no real surprises but the wheat number did line up closer to the lower estimate.  They currently project a total crop of 27.70 MMT, which is down just over 26% from a year ago.  Keep in perspective that last year was an exceptional crop.  The average production for the past 5 years has been 28.05 MMT, which is weighted heavily by 2013.

This market has been able to bounce just a touch in the overnight trade but this of course after testing the base of support yesterday.  I would still like to believe that we have pressed wheat far enough to the downside for the time being and with the funds already short that is will be difficult to attract much new selling.  That said, for now we lack a stimulus that could carry us back higher as well. 


The corn market has been stable overnight in face of the showers that are passing across the upper Midwest.  Northeastern Iowa remains a place of concern, as it would appear that they missed the overnight showers but the maps this morning look as if they are catching a drink.   

Exports sales were not quite as disappointing as wheat but certainly do not provide any excitement for the bull either.  For the 2013/14 marketing year we sold 99,800 MT or 3.9 million bushels and for 2014/15 crop year 719,300 MT or 28.3 million bushels.  The primary purchasers for new crop were Columbia at 223,300 MT, Mexico at 193,600 MT and unknown destinations at 161,900 MT.  It would appear that China is not content to just put a stop to imports of corn, it was reported overnight that there are some promoting increased scrutiny on imported US sorghum and barley.

Canada has been steadily increasing their production of corn over the past several years but is expecting a setback this year.  The Stats Canada report estimates total corn production of 14.43 MMT, which is down 19.5% from last year.  The five-year average production total has been 12.09 MMT. 

In face of what would appear to be all negative new this morning, corn futures have held support once again and bounced.  I suspect any strength though will be fleeting and with December future encountering very stiff resistance against the 3.75/3.80 zone.


While the weather outlook continues to be a negative influence on the bean market, near-term demand from crushers and solid new crop export sales have been able to lift prices back higher this morning. 

For only the second time this marketing year, old crop soybeans sales registered in the negative column, this time for -89,700 MT or -3.3 million bushels.  For new sales though, we sold 1,420,600 MT or 52.2 million bushels.  The major buyers were China at 947.9k MT, Spain at 120k MT and unknown destinations with 111.1k MT. 

While not a major player in the greater scheme of things, Canada has been pushing up bean production and Stats Canada projects that they will again this year.  The estimate places production at 5.9 MMT, up 13.5% over last year and would be 30% above the 5-year average.  If you recall, many of the beans we were importing into the US in the first quarter were coming from Canada. 

As with corn, I suspect the strength we are witnessing in the bean market this morning will be temporary.  While still somewhat grudgingly, beans continue to poke into lower lows and I believe we have room to see a 9 in front of prices between now and harvest.

Is desperation near?

Aug 20, 2014

Today we are hosting our annual outlook seminar and have an exciting and informative agenda lined up.  I will intend to provide you will updates from the speakers in the days ahead.


It would appear that the wheat market is beginning to experience a case of disinterest at this time. We have little fresh little news to deal with as we are basically post production in the northern hemisphere, we already know that world stocks are growing this year and are moving into the final stages of the 2014 harvest.  Additionally, we will soon put the finishing touches on the corn and soybean crops so there is a lessoned risk of a big prices swing, i.e., rallies stimulated from problems there.  Accordingly, prices appear to be adrift and very understandably so.

We still have the possible risk of additional turmoil from Ukraine but I suspect the trade is becoming slightly numb to that news once again so the focus for wheat should realistically be completely demand, or lack thereof for the foreseeable future.  Problems for the U.S. though is that the with big crop coming from Russia and to a lessor extent Ukraine and Europe, no one will be beating down the doors here to purchase.  While I suspect we have already factored much of these elements into the current price structure so downside potential should be limited for now, it provides us with little reason for rally other than the occasional short covering bounce. 


We realistically do not appear to have much more news to help drive the corn market than we do for wheat at this time.  The Pro Farmer tour continues and while they did note some residual problems from the rough spring that farmers in eastern Nebraska encountered this year, even then the state estimate was not significantly lower than the last USDA estimate.

I suspect that growing season story will be pretty well behind us after this week, which is not to say that there will not be lots of excitement and conjecture in front of the September USDA reports but rather, in traders minds the crop will have been made and the biggest question will be how much larger it may be?  This is not to take away from the potential of an early frost and the issues that would accompany that, but that does not appear to be in the forecast coming from most meteorologists.  We do have Drew Lerner of World Weather, Inc.  presenting at our meeting today and I look forward to his always well-researched outlook.  

The near-term weather outlook appears ideal for putting the finishing touches on the 2014 crop with frequent showers forecast for much of the Midwest through the balance of the week and we appear to experiencing something that has been in somewhat short supply this summer; heat and humidity. 

All that said, the corn market actually did a nice job of bouncing higher into the close yesterday and even through we are back under pressure this morning, we remain in a now 5-week old sideways pattern.  While I do continue to believe the corn market should press into lower lows moving ahead into harvest and it may take some time to redevelop and refocus on demand but that said, that majority of this bear move should have already occurred.  Too often, people will tend to become desperate at the bottom and begin making sales out of a sense of hopelessness.  While I would not say we have quite reached that point but once it does happen, the end is very near. 


We seem to have a midweek void of news in the bean market as well this morning.  The weather forecasts look near ideal, news from the Pro Farmer tour has produced no bullish surprises and there has been nothing but standard export interest.  Looking at all of the above, it is a little surprising that prices have not been under more pressure than they already have.

Since breaking lower a week ago yesterday, November futures have been congesting in a range between 10.70 and 10.40 with the majority of the trade between 10.60 and 10.45. The meal market has been the stabilizing force as demand has remained a bit stronger than expected forcing crushers to step up but with harvest right around the corner, it is difficult to imagine that remaining a long-term influence. 

Once removed, I continue to expect to see November futures to make a push down to the 10.00 level, which in the greater scheme of things, is not significantly lower that current, just 7%.  As with the corn market, I do believe we have the majority of the downswing already in the rear-view mirror and this should not be the time to make desperation sales.


Rallies like beauty are fleeting

Aug 19, 2014



The mood appears dour in grain and soybean markets at this time and you have to dig pretty hard to find even the faintest of positive news. The wheat market began the day on it heels yesterday, finished out the same way and has sunk lower once again overnight.  We not only have the negative action in corn and soybeans weighing on this market but also the European and Black Sea trade which has been under pressure as we erase any risk premium that was factored in due to the turmoil in Ukraine. 

While it would be stretching to call it a positive influence, at least the export inspections were a touch better than trade expectations.  For the week ending August 14th, we shipped 21.9 million bushels compared to an upper estimate of 19 million.  This brings the year to date tally up to 190.38 million bushels, which lags last years pace by over 30%.  That said, year to date we have been averaging 17.3 million bushels and to reach the USDA target of 925 million, we only need to pick up the pace to 17.9 million per week.

Spring wheat crop conditions slipped just 2% with the good/excellent rating now at 68%, which is basically a moot point at this time.  Harvest has reached 17% complete, which is basically ½ the normal pace of 33%.

We have still not pressed into lower lows in the Chicago market but have reached to within a dime of doing so.  I would like to think that we just entered an extended sideways pattern but could soon test out that theory. 


The early strength in corn yesterday was like proverbial line about beauty as it fades with age and in this case we aged pretty rapidly.  December futures actually posted an outside lower daily reversal and have struggled again overnight.  Rains, warm temperatures and expectations for bigger crops and a short-term overbought position all weighed on values.

Throughout the day there were messages and tweets hitting the ether from the Pro Farmer tour and while you heard opinions of every stripe, the trade seems to key in on reports out of Ohio about potential record state yields.  This would be pretty typical market psychology, as bear markets tend to zero in on bearish news just like bull markets focus on bullish news. There were a number of comments about the lateness of the crop, which is partially reflected in the weekly conditions reports.

For the week ending August 17th, corn dented stood at 22% versus an average of 27%.  That said, 70% of the crop was in the dough stage compared with an average of 63% and overall conditions were down just 1% with the good/excellent rating at 72%, which is of course outstanding for this time of year. 

Export inspections were a bit above the upper end of trade estimates at 38.2 million bushels but this is still lagging the pace we need to finish out the year.  We shall have to wait for the census numbers for the final tally but with just two weeks left, this would say that we need to average 77.2 million per week to reach the 1.92 billion bushels target. 

While maybe too early to completely write it off, the action yesterday would appear to have negated the outside higher week and may be indicative that the seasonal August bounce is complete.  As I have commented previously, corn would likely face extremely tough headwinds on any advances and the performance yesterday reminds us that the path of least resistance right now will be to the downside. 


While November beans were able to maintain strength for the close yesterday, the action was less than inspiring.  We are soft again this morning and while we have not really tumbled lower just yet, we now appear to be finding resistance between the 10.55/10.60 level where we used to find support.

As with the corn, the trade appeared to focus on what would be negatively construed stories from the Pro Farmer tour. As we all know, beans yields are notoriously difficult to predict but a number of the comments I read sounded quite positive for yield.  This was verified by the weekly conditions report as good/excellent rating actually climbed 1% last week and stand at 71%.  Beans setting pods has reached 83%, which is actually 4% ahead of normal. 

Export inspection should be a moot point but we continue to push a few out each week.  For the past week, that tally was 2.1 million bushels which brings the year to date shipments up to 1.588 million bushels.  As with corn, the raw inspection numbers would appear to say we are going to fall short of the USDA target of 1.64 billion but we shall have to wait for the census numbers for the final tally. 

As I commented above, beans broke under the 10.55 support a week or so ago but quickly found a ledge to hold onto at least temporarily.  I continue to believe we will eventually make a dive down to the 10.20 to 9.80 range but evidently need another piece of negative news to push them off the current ridge.

Little more than technical action to start the week

Aug 18, 2014



After finishing last week on a positive note, the wheat market begins this new week on a sour one.  While the selling is not severe, all three markets are under pressure led by weakness in both European and Black Sea trade.  While there has been no resolution with the Ukraine/Russian situation, it would appear that the trade feels there will little to no impact on grain business from that region.

Adding insult to injury for Northern Hemisphere wheat prices, major growing regions in Australia have been receiving very beneficial moisture.  Even if a weak El Nino did develop this fall, it would appear to be too late for a negative impact on the Australian crops. 

As you can see, there is very little positive that can be pointed out for the wheat market this morning.  That said, prices do remain within the same trading zone as we have now for the past 6-weeks, which is ideally indicative that the trade has already factored many of these elements into the existing price structure.  Markets of course need to quit going lower before we can beginning discussing a rally and it would appear that we have accomplished at least the first part of that equation.   For now though, the headwinds will be fierce. 


The corn market has been able to muster a little follow-through buying as we begin this new week but it could be a challenge to maintain.  I suspect most of the strength is technical in nature as we did post an outside higher reversal last week but there would appear to be very little new to attract much new buying other than a little end user pricing and some short-covering. 

Decent rains fell across Southern Iowa and Missouri over the weekend and the forecast for the next 6 to 10 days calls for nice showers across the upper Midwest as well.  The Pro Farmer crop tour kicks off this week, and some of the participants had better bring their raincoats and rubber boots as it may be a bit sticky.  The trade will be looking forward to the reports throughout the week as I am sure they will be tweeted and blogged with official reports each night and then the complete wrap-up on Friday.  Updates can be found on the Ag Web website;

There is a possibility that crop conditions will reflect a little decline this afternoon, which would normally be the case but I imagine the changes will be slight. 

Ideally the turnaround posted last week has us poised for a little more of a corrective bounce but I suspect it would not be long in either time or price.  This would be a fairly typical seasonal pattern in the corn market where we catch a minor August bounce setting up a final push lower into harvest lows.  If correct this year, it should provide an opportunity for those needing to make additional catch-up sales.   


The bean market has experienced a little two-sided action as we begin this new week but as with corn, it would appear there is little outside of technical action that would substantiate strength.  The current weather picture would appear to provide near ideal conditions to finish out this crop.

Funds did appear to reduce their short positions last week and remain long in meal, which is the market that has kept beans from breaking further than they have already.  That said, we as we move closer and closer to harvest and increased availability of beans, that story will be difficult to defend as well. 

I would not expect to see much if any change in crop conditions this afternoon.

Eventually, I expect to see November futures push down at least into the 10.20 to 9.80 price range and if we can catch a little short covering bounce yet this month, it should provide an opportunity for making catch-up sales.

A Look Forward Part IV

Aug 15, 2014


So, moving forward, what does this potentially mean for all of us in the production sector?  First and foremost, if I am correct in my assessment that we have already witnessed a 30-year peak in commodity prices, we must now work through a period of re-adjustment at the farm level.  By no means do I think it is realistic to believe prices will revert to the level we experienced through the 1970’s continuing through to the new century, but we should be in the process of adjusting to our new plateau.  Using corn again as the example, through the 1920’s into the post WW II peak, prices generally traded between $.50 cents and $1.20.  From the 1950’s into the early 1970’s corn remained between $1.00 and $2.00.  The 1970’s through the end of the century, we were contained between $2.00 and $4.00 and of course now we have expanded to $8.00 on the upper end.  Does this mean that we can now expect to see corn remain roughly between $4.00 and $8.00 per bushel, or possibly $8.50 and $3.50 for the next 20 to 30 years?  While this is still the discovery period, the upper end should be fairly established but we have yet to determine the lower side.  That said, we should learn what this range should be between now and the fall of 2014.  Historically, the low end of the range is normally established during the second year after a major peak. The more optimistic outlook for the economic picture would call for a period similar to the 70’s to 90’s, where prices traded regularly between the upper and lower ends of the trading range.  But what if this new era is similar to the 50’s and 60’s?   Low volatility, narrow ranges, and stagnant returns for production agriculture are possibilities that could be very real and disastrous. 

As covered previously, input costs and expenditures on machinery and equipment have accelerated sharply over the past five years.  Along with readjustments in those sorts of purchases, if, as I believe, prices begin to stagnant at this new range there will need to be major readjustments, particularly in the area of cash rents and land prices which are exhibiting many of the classic signs of a bubble.  About this—in six of the past seven years, agricultural ground in the heart of the Corn Belt has risen at a double-digit rate.  In some regions over the past few years, ground prices gained as much as 26%! [i] 

I believe the essentials you need in your toolbox moving forward are the following:

1.     A sharp pencil

a.     You need to know exactly where you are and recognize areas where waste or inefficiencies can be eliminated.

2.     Education

a.     Brush up on your risk management education.  If you have not been using your skills, all tend to become a bit rusty and out of shape.  It is time to bring these skills back to top performance levels.

3.     Use all the tools at your disposal

a.     Cash contracts

b.     Futures and Options

c.     Revenue Insurance

d.     OTC Products

There are a variety of tools that are available that can help you address risk and manage return.  There is not "one size fits all", so you need to learn how to use the right ones for the right job.

4.     Discipline

a.     This really applies to all aspects of your operation.  It applies not only to the discipline needed to develop a well thought out written risk management/marketing plans, but just as important the discipline to implement such plans.

5.     Strengthen your relationship with your lender

a.     Many of us have needed to rely less on lenders over the past couple of years, and it may be time to re-develop that relationship.  Keep in perspective as well that someone under the age of 35 has never really experienced a rough period in agriculture.  You need to be prepared for how your lender could react. 

6.     Set realistic i.e. toned down expectations

a.     We have grown accustomed to very substantial returns on investment in production agriculture, which is not historically the norm.  How long to you think it would be realistic to see double-digit returns with a zero percent interest rate environment?

b.     Additionally, up-cycles such as we have experienced over the past decade or so are very forgiving to less than disciplined risk managers.  Down cycles are very unforgiving

We at the Hueber Report specialize in providing you with the very tools you need to thrive in all periods of the Agricultural Cycle, especially when times become challenging as it appears they will over the coming years.  We consider it a privilege to work with the American Farmer, to help them manage risk, and to prosper through a disciplined approach to marketing.  Whether we are feeding a world population of 8 billion or 10 billion by the end of the century, farming is literally the industry that can mean life or death for the world.  We strive to do all that is within our power to help clients carry out this task profitably.

When you concentrate on agriculture and industry and are frugal in expenditures, Heaven cannot impoverish your state.

Xun Zi

[i] The Agricultural Newsletter of the Federal Reserve Bank of Chicago.  Number 1961. August 2013.

Where's El Nino?

Aug 15, 2014



We have prices trading higher as we finish this final day of trade this week. It seems like a distant memory at this point but it was only 4 days ago that the much-anticipated USDA report was released and as it stands right now, December wheat is trading higher than the close on Tuesday but not quite back to the close posted on Monday.  That actually stands to reason, as the wheat numbers were predominantly neutral. 

Aiding the strength overnight is the ongoing tensions in Ukraine.  Russia has been sending trucks supposedly filled with humanitarian supplies and of course Ukraine is very weary of them containing something else.  So far, inspections have been allowed but it is obvious that issues there will keep markets jittery for sometime to come.  It is interesting to note that there seems to have been little to no impact on the Black Sea markets and trade.

I read an interesting story overnight concerning El Nino, or maybe better stated the lack of an El Nino.  This could be akin to the once popular children’s books, Where’s Waldo?, but rephrased Where’s El Nino?  If you remember back in late winter and early spring that was one of the topics that people could not talk about enough as predictions were for one of the largest events since the late 1990’s.  That has largely turned out to be a bust but some still believe it could form in a much-reduced state later into the fall.  Of course the concern was for India and Australia as there is a decent correlation between droughts in those countries and El Nino and while both have had drier than normal years, they were not droughts.

It should be interesting to see if the strength can be maintained into the close today. For wheat, outside of the unease concerning Ukraine, there would appear to be little to panic the bear. 


The corn market was able to hold gains into the close yesterday and has built upon that overnight night pressing back against what has been key overhead resistance.  Using the same rationale I did it wheat, it is understandable in light of the report that prices have stabilized and even bounced a bit as in the domestic numbers, the estimates were all less than trade estimates but that said, none of them could be classified as bullish.  As it stands right now as I prepare these comments, December futures are 5-cents higher than the close on the report day and we have pushed to the highest point traded in 5-weeks.  The big question would seem to be if we can hold this strength for the weekend close?

If we were to try and answer that question via the current weather outlook, it would seem to be a no.  Over the next week, over 70% of the growing areas are forecast to receive rainfall in the 1 to 2 inch range which should really help fill out those ears.  I suspect that we could also be looking at a little cautionary short covering in front of the FSA acreage data today but that is probably stretch.  This looks like technical buying that is correcting a short-term oversold position and it may be tough to sustain that for a weekly close.  That said, if we close above 3.74 ¾ today and even more critically, 3.78 I am not one to argue with the signal as that could lead to a push back to as high as 3.96. 

All that said, the overall picture looks anything but bullish at this point.  The Pro-Farmer tour kicks off this next week and if their findings are consistent with other private tours, I suspect the information will be negative.  If we can catch a little additional technical bounce in the mean time, it should allow for catch-up sales for those that need to.


November beans poked in a lower low yesterday but did bounce enough into the close to finish back above the key 10.55 point and have extended a bit higher again this morning.  While there was nothing shocking in the report numbers on Tuesday, they did lean to the negative side.  On the close that day November finished at 10.59 ½ and this morning we are trading at 10.64. 

As with the corn market, the weather forecast between now and next weekend would appear to be quite favorable for pod fill and moving this crop along.  The July crush number will be released later this morning and the trade is looking for something in the 113 to 117 million bushels range.

I suspect the overnight strength is technically inspired here as well and it will be interesting to see if that can be maintained into the weekend especially in light of the weather outlook for next week.

Tell me something new

Aug 14, 2014



The wheat market just cannot seem to find a friend at this point and really have little news that would provide encouragement. Chicago futures have been able to remain above the late July lows so far but both Kansas City and Minneapolis futures have poked into lower lows. 

Competition in the export markets remain very stiff, particularly from the Black Sea region and I even read that Brazil may be trying to sell wheat, and if correct would indicate they will no longer be in our market as a real buyer. 

The sluggish trade was verified with the latest export sales as we sold just 338,700 MT or 12.45 million bushels last week.  This number was down 43% from last week and 37% below the 4-week average.  The top purchasers were Unknown destinations at 68.9k MT, Brazil at 59k MT and Mexico with 51.9k MT. 

Prices have stabilized overnight and there is no question that we sit in a very oversold position but there would appear little to scare the bear away from this market just yet.


We are looking at relatively stable trade in the corn market right now, which would seem quite understandable in light of the news we have received this week.  In theory, the trade was geared up for a larger yield and carryout number than the USDA gave us, which would imply that we have already factored that into the price structure.  Add in a surprise sale of 130k MT to unknown destinations and we have enough of a story to keep prices from dipping lower for the moment.  Historically, corn will have a tendency to trade flat during the month of August as we assess the overall condition of the crop and that would appear to be the situation we have right now.  There appears to be nothing that would encourage buying at this time unless it comes via spread action against beans or wheat and it would be difficult to sustain a rally on that right now.   The trade will be keeping a close eye on the preliminary acreage data that should be released by the FSA tomorrow in case there is any suggestion that current acreage estimates are too high, but I would be surprised to see any shocking revelations this year.

Granted, the marketing year is winding down rapidly but the old crop export sales number did not help the mood any this morning.  We posted a negative 117,100 MT or - 4.6 million bushels as business is pushed out into next year.  Sales for the 2014/15 crop came through at 787,800 MT of 31.02 million bushels.  The top purchasers were Columbia for 284k MT, unknown at 138.2k and Mexico for 75.5k.

Ethanol production bounced back well last week as we produced 273,714,000 gallons, using an estimated 98.4 million bushels of corn.  Inventories were down for a second week in a row, reduced by 21 million gallons. 

The corn market has been moving in a sideways pattern now for the past four weeks and it is possible that we could extend that out for another one to two weeks but I suspect that any rallies into the 3.75/3.80 level basis December corn would be met with stiff selling.  As I commented yesterday, if we did close above 3.74 ¾ tomorrow, technically the market could be providing us a tip off that enough is enough, but lacking that I have to believe we will be headed for lower lows as we move out into harvest.


Reality appeared to come home to roost yesterday as November beans pushed and closed below the 10.55 level where we had posted a double bottom last month.  Realistically, you would want to see a second consecutive close below that mark for a confirmation and the sluggish action this morning would make one think that is quite feasible. 

I recognize that beans do need heat and sunshine moving forward but the latest 7 day precipitation maps would indicate that if there were any concerns about dry spots through the Mid-west, they will be alleviated during that period.  NOAA is showing that pretty much the entire upper 2/3rd of this country is in store for 1 to 2 inch rains between now and the 21st of this month. 

We do have August beans expiring today which should complete the old crop/new crop story for this year but there will still be a few weeks of good domestic demand as crush margins remain solid with limited availability in many areas.  Meal demand has been stronger this month than the industry had anticipated but the drag continues to be oil as evidently both here and abroad, there is more than sufficient quantities of vegetable oil. 

No surprises in the sales numbers for either crop year.  For 2013/14 we did record sales of 61,400 MT or 2.26 million bushels.  2014/15 sales were solid at 1,081,800 MT or 39.76 million bushels.  The primary purchasers were China at 640k MT, unknown destinations at 293.5k MT and Taiwan at 115k MT.

NOPA crush numbers will be issued tomorrow with the trade looking for between 113 and 117 million bushels. 

New crop export business has continued to provide support for this market but as we inch closer and closer to harvest without any weather hiccups, I have to believe that the bean market will continue to works it way into lower ground.

Time to clean up after the USDA report party

Aug 13, 2014



USDA reports seem to have become akin to the preparations for a big party.  There is lots of anticipation and excitement leading up to the date and once the time has arrived it is met with much hoopla but just that quick, it is over and someone is left to clean up the mess.  As it turns out, there really was not too much mess to clean up from this one as there were no major shockers and both the bulls and the bears came away with a little something to crow about.

As expected, the wheat yield was boosted slightly due to better performing spring crops and is now estimated to be 43.9 b/p/a, up 8/10th from July.  This increased production by 38 million bushels to 2.030 billion, which was nearly offset by a boost of 35 million in usage.  Simple math says carryout was increased an insignificant 3 million bushels or .45% to 663 million.   In the world numbers, Chinese production was bumped up 2 MMT, Ukraine 1 MMT and Russia 6 MMT but this has been talked about for weeks so not really a major piece of news.  The net result though after increased usage was to see world ending stock rise 3.54 MMT or 1.87% to 192.96 MMT.  This would be the largest since 2011/12.

Considering there was really little change that was unexpected in these numbers, I was a little disappointed in the action post report.  Prices did not press into new lows for the move but we did head down for a pretty good test of the existing lows.  We have bounced a bit overnight and I suspect we have to begin the rebuilding process at this level once again and could move sideways for a few weeks before considering a rebound again.


Undeniably the corn market received the most "positive" news in the report yesterday but using that noun is really an oxymoron.  The numbers were not as negative as expected but by no means can we really say they were positive either.

As we reported pre-report, the trade was looking for a yield of around 170 b/p/a and total production around 14.239 billion and what we heard instead was a yield of 167.4 and production of 14.032 billion.  Certainly lower than the guesses, but each would still set new records.  Many, myself included have commented that large crops tend to get larger and I suspect this one will not buck the trend.  The USDA did report a record ear count for this figure but not a record ear weight, evidently using statistical averages, so there is room for that yield number to climb above the 170 level on future reports if weather allows for a good finish to the crop.  

I believe the real positive surprise came via the usage numbers as the government first boosted current crop year usage by 65 million. Of this, 45 million was in the ethanol production, which is very understandable and the other 20 million in exports, which is not so understandable.  So, immediately we had eaten up 38% of the increase in production due to the higher yield.  2014/15 usage was then boosted 100 million bushels so the net result was we used 96% of the production boost and carryout was increased an insignificant 7 million bushels. 

Over in the world estimates, between the increase in the US and higher production in the EU, total world production was bumped up 4.43 MMT but after pushing usage higher as well the ending stocks were cut .23 MMT to 187.82 MMT.  Once again we need to keep the changes in perspective as that is still a record ending stocks figure, eclipsing the previous high water mark set last year by 16.73 MMT and marks the 4th year in a row of rising stocks. 

Corn did press briefly into new lows after the report but bounced higher from there, which is very understandable.  Theoretically we have factored in larger production and inventories and they were not confirmed.  There is by no means any guarantee that they have to grow larger but without a weather issue moving forward, I continue to believe they will but this report could keep the seller at bay until we know more down the road.  One tidbit to keep an eye on though is that with the lower low and reversal posted yesterday, we need to be on the watch for where December corn finishes this week.  Last week’s high was not that far overhead at 3.74 ¾ and if for some reason we reach up and close above that level, the technical side of the market could be telling us the run of the bear could be drawing to a close. 


While not "in your face" bearish as the number were right on the trade estimates; there was nothing for the bull in the bean estimates.  For the old crop, the USDA made a few adjustments, cutting imports 5 million, boosting exports 20 million and boosting residual to a huge negative 94 million with the net result being an unchanged ending stocks.  It would seem that the crop last year has still been understated to justify that large a negative residual.  Regardless, with no change in the carry-in and a boost of 2/10th of a bushel in yield, total supply of beans increased 16 million bushels as did the projected carryout to 430 million.  In big years bean crops also tend to move higher after the August report.  I have no reason to question that, particularly with what now appears to be a very favorable weather forecast, but you already have to be amazed with the combination of big acreage and big yield this year.  This is a record planted acreage by 7.3 million acres and would be a record yield by 1.4 b/p/a or 3%.  An additional interesting side note, I was on Market Rally Radio with Chip Flory yesterday and he pointed out that this year we will harvest more acres of beans, 84.1 than corn, 83.8.  I believe this has to be a first.

Over on the world numbers we found very few changes.  Even with the increase in the US, total world production was lower .1 MMT but the world ending stocks increased .32 MMT.  Nothing major but once again, the largest ever and this by a margin of 13.9 MMT. 

November beans did poke into a new lows for the year yesterday but were able to bounce back enough to close above that watermark.  That said, without a weather issues as we finish out this crop, I have to imagine that we will eventually see a 9 in front of prices as we move out into harvest.

Morning Comments - Time for the Ref to step in

Aug 12, 2014



As you might suspect, the action overnight and into this morning is all about the August production and supply/demand reports.  We find little fresh in the overnight news so trade is likely dominated by position squaring.

The average estimate for domestic wheat production is looking for an increase of around 21 million bushels to 2.013 billion in response to potentially stronger spring crop yields but the bigger surprise could be in the world numbers.  While the European crop may be plagued with quality issues the reported yields have been solid and as we have discussed a number of times, the Russian crop could be 7 to 9 MMT larger than the last USDA estimate. 

The winter wheat harvest has continued to progress at a pace just above average and stands at 95%, but spring harvest is getting a slow start.  As of August 10th only 6% of the crop had been harvested compared with an average of 21%.  Idaho and Washington were the only two states reporting progress ahead of normal.  The overall condition of the crop remained unchanged with 70% rated good/excellent.

Exports did pick up a bit in the past week as we shipped 19.4 million bushels versus expectations between 12 and 18.  This brings the year to date total up to 167.39 million bushels, which still lags last year at this time by 30%. 

We shall see what surprises if any are uncovered at 11:00 central and more importantly how the market reacts to the news itself. 


After posting a nice little bump higher yesterday, the corn market is back under pressure overnight as we tread water in front of the August report. This technically is the first "real" report of the year as the USDA blends surveys with physical counts and if there are measurable ears, which there should have been this year, factor that into population counts and plant health to come up with a number.  Of course, this should be more accurate than a basic beauty contest with statistical data factored in but I suspect that the trade will quickly estimate what ever the figure is to be understated.  Point being, even if the numbers were below trade estimates, rallies would be short-lived. 

It would not have been a surprise to see a slight drop in crop conditions this past week but that was not to be the case as we remained at 73% in the good/excellent category.  Silking was reported at 96% and corn in the dough stage has reached 54% compared with the average of 46%.  This is the first week of reporting the dent stage, which was at 11%, compared with 16% on average and last year at 5%.  Southern states are beginning to make a little harvest progress with Louisiana at 6%, Georgia at 7% and Texas at 17%.

Exports inspections were sluggish once again as we shipped 35.6 million bushels, which was right at the low end of expectations.  This brings year to date exports up to 1.727 billion.  To reach the USDA target of 1.9 billion we would need to average 57.6 million per week for these final three weeks of the marketing year.  On the bright side, exports are up 262% over last year at this time.  

The average estimate for the yield number today is just over 170 b/p/a and production of 14.239 billion bushels.  The 2014/15 carryout could be posted above 2 billion and as I have mentioned before, this should be one of those psychological breeches once it has occurred.   We shall see what Uncle Sam has in store for us at 11:00 central and just as important; how the market reacts to the news.  Once beyond this figure, I suspect the debate as to the maturity of the crop and possible freeze concerns will soon begin.


For the better part of the past five weeks, bulls and bears have been battling it out for dominance in new crop beans with November futures stuck roughly between 11.20 and 10.55.  With the game still tied, it would appear that the USDA has the potential to step in as the referee of sorts and give the ball to one side or the other but odds would seem favor it will be to the bear.

Crop conditions did slip a bit for beans last week with 70% now rated good/excellent, down 1%.  Regardless, this is still exceptional.  Beans blooming remain right around average at 92% and setting pods are 7% ahead of average at 72%.  Difficult to find much worthy of concern in those numbers.

Export inspection remain at least consistent.  For the week ending August 7th we shipped 3.6 million bushels, compared with the 4-week average of 3.35 million and the 10-week average of 3.8 million.  Year to date we have now moved 1.586 billion bushels but to reach the USDA target of 1.62 billion, we will need to ship 11.4 million per week for the next 3 weeks. 

As with corn, I suspect at any number that is released today will be discounted by the trade as light.  With the weather outlook for the balance of August pretty conducive to finishing out this crop, it would need to be surprisingly low to excite much buying.  If the recent lows at 10.55 give way, I suspect we will be making a quick trip down to the 10.00 level.

Morning Comments - It will be the reaction that counts

Aug 11, 2014



The Ukraine inspired bounce in wheat is but a memory now as with the lower overnight trade, we have been down for 3 days in a row and have erased a little over 60% of the rally in the process.  While additional problems could still erupt at any time, reports tell us that the Ukraine military forces have surrounded insurgents, cutting off power, fuel and other supply chains and it should be only a matter of time before the current uprising is quelled.  When the next one happens is anyone’s guess.

Outside of that, the action will be dictated by the reports tomorrow morning.  We should not see major changes in the wheat figures but due to the solid yields from the spring plantings, the trade is expecting to see the total production number climb from 1.992 billion on the July report to somewhere in the neighborhood of 2.013 billion. 

With expectations of a larger domestic crop as well as larger than expected Russian production and a Black Sea market that will dominate the export trade for some time, it is difficult to find much encouraging to report about wheat.  That said, the reaction to the reports would be the key element tomorrow.  With managed funds already carrying a large short position and expectations for larger numbers we may have factored in much of the bearishness.  As always, it is how we react to number more so than the raw figures that can provide clues as to market direction. 


We have witnessed two-sided action in the corn market during the overnight hours but remain quite stable at this point.  The two-most critical factors this week are the report and the weather outlook and right now, it would appear that neither will be providing support for the bull cause. 

Showers have fallen or are predicted to fall this week over 80 to 85% of the growing region with up to 1 ½ inches reported in some areas.  The outlook then for the last third of August is for a warm up in temperatures into the 80’s and low 90’s, which should be nearly ideal conditions to begin speeding up the fill and maturity of this crop. 

For the report tomorrow the trade is expecting to see the yield come in right around the 170 b/p/a mark with total production around 14.239 billion.  This would be up 379 million from the July estimate and if that is the figure, could push the carryout over the 2 billion bushel mark.  I believe that is one of those psychological benchmarks that will define the action moving forward.  Of course, many will expect to the crop size to continue to grow even more and traditionally, that would be the case, as a large crop tends to become larger. 

Interestingly enough, funds continue to remain long corn and one can only imagine they are using the short wheat position as the offset.  That said, it would appear that they will be provided with little to support that position and if wheat does indeed stabilize and rebound, it could be even more negative for the corn. 


November beans have also witnessed two-sided action in the overnight hours and did poke in a slightly higher high versus Friday but appeared to run into resistance at the January lows at 10.88.  We continue to see the saga of old versus new unfold as the soon to expire August futures have pushed higher again this morning reaching a new high for the August/November spread.  Back on the 17th of July that spread posted a low of +72.5 to the August and this morning it has traded to +210. Of course with harvest literally just around corner, this story will soon come to an end.

As I covered in corn the weather outlook for the balance of August looks quite favorable for crop develop in much of the growing region.  Showers through the balance of this week and then a warm-up in temperatures then for the balance of the month.  That would appear to be just what the doctor ordered for the bean crop. 

The average trade estimate for tomorrow has the yield at 45.5 b/p/a, which would be up just 3/10th from July bringing in production of 3.8 billion.  The trade is expecting to see the current crop year carryout cut 3 million bushels to 137 million and looks for the 2014/15 carryout to rise to 409. 

With a weather issue looking unlikely, without a positive surprise from the USDA tomorrow, it is difficult to imagine why new bean will continue to hold around this $11 mark and could easily be overvalued by $1 or more.

A Look Forward Part III

Aug 08, 2014


A Look Forward Part III

Next is the issue of production.  Just as in the 1970’s, concern is growing.  With world-wide urban sprawl, is there enough ground to continue with increased production?  That is where supply and demand comes in.  There is an old adage that the best cure for low prices is low prices, and conversely the best cure for high prices is high prices.  This is basic economic theory, because if you provide individuals with a profit incentive, they will find ways to make it happen.  A perfect example of this can be found in South America in the early 1970’s.  Though countries like Brazil and Argentina did produce soybeans, corn and wheat prior, the price explosion in the 70’s provided the incentive to invest in expanding that production. Here we are today, with South American producing more soybeans than North America.  There is still room for expansion in that region but not on the kind of scale witnessed through that previous period. 

So the question is, where can we grow now?  The old quote by Mark Twain would seem to ring true: "Buy Land, they’re not making it anymore" but that does not mean there is not land that could be brought into production.  The UN Food and Agricultural Organization estimates that only 32% of the arable ground on the planet is in production, but much of this has been taken over by cities and towns.  Still, there are areas where expansion for agricultural production is possible.  Increasingly, people are looking to Africa where it is estimated to be home of over 1/3rd of the remaining untilled arable ground.  Ethiopia alone has nearly 183 million acres of soil suitable for farming, of which only 1/5 is currently under cultivation.  The landmass that could be used for production in the Democratic Republic of the Congo would rival Brazil.  Civil Wars, corrupt governments, and a multitude of other problems have kept investment at bay in recent years. 

But as prices have rallied, investors seem more willing to take a chance on these African countries.  Saudi Arabia has created an $800 million fund for joint agricultural investment, and has been very active in Ethiopia.  The nation of Qatar has accumulated over $1 billion in its sovereign wealth fund, and has created a food company with the express mission of investing in agricultural production around the world.  Beginning in 2009, South Korea begun committing 1/10th of its agricultural budget to assist South Korean companies in purchasing land in other countries, and India has already invested more than $2 billion in Ethiopia to gain access to food production[i]

And China?  The investments being made by China globally take us into a whole new realm. Their need to look beyond their own borders for food and other resources is very much driven by necessity.  Between 1997 and 2008, the amount of arable ground suitable for farming in China dropped by around 30 million acres, not only due to growth in urban regions but also due to pollution issues that have rendered ground unusable. In response, between 2005 and 2011, China invested on average $1 billion per week in direct foreign investment primarily pertaining to natural resources[ii].  Additionally, as of 2010, there were at least forty-five private equity firms in existence with the goal of raising at least $2 billion; specifically for investment in African Agriculture. 

Of course, this is not the only area on the globe with potential for expansion. The dissolution of the Soviet Union left the collective farm system in disarray, but investment money appears to be finding its way into that region as well.  In the Former Soviet Union nations, it is estimated that there are currently at least 74 million acres of ground that used to be in production that now sits idle due to lack of investment. That would be comparable to all the acreage currently planted to soybeans in the United States.  Certainly, there will be many problems to address before production will increase, such as lack of infrastructure, backlash from citizens and unstable governments; the same could have been said about Brazil 40 some years ago.  Add to this the fact that genetics are providing varieties that can produce in climates not previously possible, and it would appear that we have the elements in place to take world production into a new realm. 

The question that remains is, can this unfold fast enough to meet the growing human population needs of this planet?    A number of bullish forecasts for rising commodity prices and food shortages have been predicated via projections by the United Nations.  The organization estimates that the current population of the world stands at 7.2 billion people, and predicts that this will rise to 9.3 billion by 2050, and over 10 billion by the end of the century.  These statistics have largely been unchallenged. 


But what if they are mistaken?  Sanjeev Sanyal, a global strategist for Deutsche Bank, published a very interesting study challenging this accepted wisdom[iii].  According to his research, the Total Fertility Rate (TFR), which is the average number of live births per women over her lifetime, has been dropping rapidly in not only developed nations but also in under-developed.   It is well documented that the most populous nation in the world, China, has been experiencing a negative population trend for a number of years.  But even the second most populous country, India, has seen its TFR drop from 5.9 in 1950 to 2.6 today, which is barely above the replacement rate of 2.1.  To compound the trend for these nations is the fact that both have boy/girl ratios in favor of boys, which also skews reproductive rates lower.  Mr. Sanyal believes that the world population will peak at 8.7 billion by 2055 and then decline to 8 billion by the year 2100.  That is a significant deviation from the UN projections.  This is not all bad news for agricultural demand, as part of this reflects rising income levels.  Historically, rising income also increases demand for meat protein in diets, which requires more grain for the production of such.   

We tend to look at historical data as a very large aggregate.  It is easy to think that the population of the world has just continually become larger, and while that is an undeniable truth, the growth is not linear—there have been major periods of contraction as well.  The cycles of population ebb and flow just like all other natural phenomena.  While both still important, the question for the future profitability of agriculture would seem to be tied more to the pace in the growth in wealth for underdeveloped regions of the world than the growth of population.

[i] McMahon, P. (2013). Feeding Frenzy. London, UK: Profile Books, Ltd.


[ii] Moyo, D. (2012). Winner Take All. New York, New York, Perseus Books Group.


[iii] Project Syndicate. (n.d.). The End of Population Grwoth. Retrieved from Project Syndicate: www.

Daily Comments - Pre Report Blahs

Aug 07, 2014


Travel necessitates another evening comment but I should be back on the regular schedule next week.


We are still a couple sessions away from the August crop production report but the trade has already slipped into report mode where the only action appears to be stimulated but position squaring in front of the numbers.  Wheat should be the market with the least potential impact from the reports but a surprise in either corn or beans could have a big impact on this market as well.

The situation with Russia remains tense at best as they have now banned imports of a number of western products including meats, fish, cheeses, vegetables and milk. I have not seen where the US or others have tried to retaliate at this point but it would appear to me that the only loser in this situation is the Russia consumer who will likely be paying more for the food that they consume.

While still better than the 10-week average, wheat sales dropped 26% this week to 590,900 MT or 21.7 million bushels.  The best buyers were Nigeria at 222,400 MT, Taiwan for 85,300 MT and Mexico for 68,300 MT.  The Black Sea continues to dominate the world market and with the recent trouble, the Russian Ruble continues to sink making them all the more competitive in the world trade. 

It would appear that for now, we have a waiting game until the reports on the 12th.  The average trade estimate for all wheat is slightly higher than the July estimate at 2.01billion bushels.  The most interesting number may be to see what the USDA does with the Russian crop.  On the last report they projected a 53 MMT crop and some in the trade now believe this could be in the 60 to 62 MMT range. 


Relatively lifeless trade in the corn market as we count the hours down to the USDA report.  Each weather update appears to confirm cooler than average temperature through much of the balance of August with a few showers every now and then thrown in for good measure.  Hardly the kind of news that would scare too many bears away. 

Exports sales were disappointing especially in face of the depressed values as we posted the lowest weekly number since mid June for old crop and the lowest number in three weeks for the new.  2013/14 sales registered 120,900 MT or 4.8 million bushels.  This does carry us to 19 million bushels above the USDA target but as pointed out earlier this week, it would appear that part of these will be pushed into the next marketing year.  The 2014/15 sales were 758,700 MT or 29.9 million bushels which is still above the 10-week average of 18.8 million but down 30% from last week.  The best purchasers were Columbia at 237,000 MT, Mexico at 186,200 MT and unknown destinations at 108,200 MT. 

The current trade estimates for next weeks report has an average yield of 170.2 b/p/a and production of 14.25 billion.  The Hueber report issued our estimate today with a yield of 169.5 b/p/a and total production of 14.208 billion. 


November beans could not sustain the early strength yesterday and ultimately finished a touch softer for the day.  Prices have struggled in the early evening trade and it would appear this market has slipped into pre-report mode as well. 

There were no surprises in the export sales numbers but both old and new crop were towards the bottom of the trade expectations.  For the 13/14 crop year we posted another 94,900 MT or 3.5 million bushels which would appear to be a moot point at this time.  We will see a fair amount of the remaining sales on the books rolled into the new crop.  For the 14/15 sales we did book 1.008 MT or 37.1 million bushels and while by no means shabby, very much expected. 

With weather forecasts continuing to remain favorable, the last best chance for the bean market would appear to be a positive number on the estimates next week.  Seeing that the trade is expecting a boost in production, it would appear we could remain susceptible to positive surprises if prices do not mover higher between now and Tuesday. The current trade estimate calls for a yield of 45.5 b/p/a and production of 3.815 billion.  The Hueber Report is looking for the USDA to leave numbers unchanged at 45.2 b/p/a with production at 3.8 billion bushels.  

Never discount the potential for a surprise but it would appear that it should be difficult for the bean market to hold support in the current range for much longer.  The bulls have been waiting for reinforcements but they may never arrive.

Morning Comments - Russia creates a risk off environment

Aug 06, 2014


Due to an early morning travel schedule, I am putting out the daily comments during the evening so export sales will not be included.  We will catch up with them on the Friday morning report.


As Yogi Berra once said "it is déjà vu all over again" as the wheat market extended higher in response to stories that Russia was amassing troops on the Ukrainian border in an effort to maintain peace and ensure the safety of Russian citizens living in Ukraine.  Is it ever a good thing to have the fox or in this case the bear guarding the hen house?  We now have the west calling for an economic embargo against Russia, including wheat and Russia looking at embargoing various products from the west and tension appear to be escalating.  While I do not think it quite the same, this is what accelerated wheat to the spring high previously this year and appears to have shaken us from the doldrums once again.  Hopefully this situation comes to a quick and peaceful resolution but with managed money leaning well to the short side of this market, the safest place would appear to be on the sidelines.  If you did not have a chance to read it, in the Financial Times this week, economic historian Niall Ferguson wrote a good piece explaining why we should not immediately pass off this situation as that was the same mistake the west made 100 years ago when Archduke Franz Ferdinand was assassinated, which ultimately sparked off WW I. 

Lets hope that a peaceful situation evolves from these tensions but until it does, I have to imagine the wheat market will remain on pins and needles.  As I have covered previously, there is little positive in the wheat fundamentals at this point but uncertainty demands that risk be reduced and that translates into buying. If tensions settle down once again, there would be little to support prices.  


The short covering in wheat prompted the same action in corn and December future pressed up to the highest level traded in over a week.  Overhead resistance is dense in this contract up to the 3.78 level and while continued rally in the wheat could carry us through that point, independently there is little positive news to be found. 

Bloomberg News did publish average trade estimates for the upcoming report and show an expected average yield of 170.2 b/p/a with total production of 14.25 billion bushels.  The average estimate for the carryout came in at 2.034 billion bushels and if it does turn out that we push carryout north of the 2 billion mark on this report, I have to think it would pound that proverbial final nail in the corn bull coffin. 

We witnessed a big slice in the ethanol production last week, not due to profitability but transportation issues. For the week ending August 1st we manufactured 265,188,000 gallons, which is over 10 million below the 10-week average.  This figure still equates to around 95 million bushels of corn so is still nothing to sneeze at.  Ethanol inventory was down 14 million gallons.  

Yield reports are slowly emerging from the south and while limited at this point, have been outstanding.  Prices have softened again in the overnight trade and it is possible that we could easily see this market chop sideways now into the report but unless the situation in Ukraine really evolves into something major, I have a difficult time not thinking this may be just a resting spot before the next dive into lower lows.   


The bean market was not to be left out of the short-covering rally and November future rallied away from the base of support once again.  We have seen a little two-sided action in the early overnight trade so neither bulls nor bears would appear to hold the upper hand at this point. 

That said, I believe the burden of proof lays with the bull at this time as with no real weather threats on the horizon, thoughts should turn to bigger crop potential.  The Bloomberg survey revealed an average trade estimate of 45.5 b/p/a and total production of 3.815 billion bushels.  While that is not much different than the last USDA estimate regardless, it is a larger number.   

I would still like to believe that we have room to see November bean work back against the 11.00 level between now and the report.  If correct, I intend to view such action as an additional hedging opportunity as it would likely require a weather issue to extend from there and right now that does not appear to be in the forecast. 

Morning Comments - NOAA provides bulls little to hope for

Aug 06, 2014



The wheat market was able to buck the action in corn and beans and went on to extend gains yesterday.  We have been able to extend the gains again overnight, posting the 5th higher high in a row and tested the Ukraine air disaster inspired high of 5.84 ½ in the December contract.  Realistically I find little news to support the rally so one has to believe it is predominantly technical but that said, those indicators would suggest there is a bit more to come yet.

More quality issues have surfaced overseas with Ukraine now reporting problems with excessive moisture.  Keep in perspective that this really just creates an issue for millers and even then, there is ample good milling quality wheat around the world but the logistics need to be worked out.  Harvest in Russia is now estimated to have reached 44% complete and the ideas of the crop size continue to grow with some now estimating numbers in the 60 to 62 MMT range.  Keep in perspective that the July USDA estimate had them pegged at 53 MMT.

Informa updated their production estimates yesterday with very limited changes in wheat.  They are looking for a total wheat crop of 1.986 billion which compares with the last USDA estimate of 1.992.

I see nothing yet that would suggest that this initial technical bounce in wheat is complete and if we can poke through 5.84 ½, it should open the door for a run to at least 5.95 and at the outside 6.25.  Unless the government provides some type of bullish surprise next week though, it will be difficult to sustain the gains. 


In typical Tuesday undo fashion the corn market finished lower yesterday but we have picked up the lost territory and then some in the overnight hours.  I see little in the new that would back up the strength so one has to imagine this is little more than technical short covering in front of the report.

Nice showers cut across the middle section of the Corn Belt yesterday, coming as a bit of a surprise for many and the latest 6 to 10 and 8 to 14 day forecasts offer little for the bull.  If correct it would appear that 80 to 85% of the production area will be receiving moisture and temperature throughout the period are expected to remain generally cooler than normal.  Unless temperatures really warm up in the early fall, this could again be a banner year for the gas companies. 

Informa released their corn estimate yesterday and did not boost yields quite as much as other private estimate.  They pegged yields at 168 b/p/a for a total production of 13.988 billion bushels.  While this was less than the others, it still reflects an increase of almost 3 bushels from the July USDA estimate. 

As I mentioned initially, the strength Monday and again overnight would appear to be technical short covering in front of the report and with the higher highs overnight, we should have the door open for a test of the recent highs at 3.78.  That level should provide the real test as to if this market has any momentum and if we can poke and close through that point, we could be lucky enough to catch a quick run to the 3.95/4.00 zone.  If that occurred in front of the report, Uncle Sam would need to provide us something pretty positive to sustain the strength.  What do you think the odds are of that happening?


It has been unusual for beans to take a back seat to the corn and wheat markets but that is what we appear to have at this point.  As with corn we did see a Tuesday undo setback and have strength overnight but so far the range is tight and we are looking at a second day in a row of inside trade. 

The report and weather are the only two key elements this week.  While you could say both are unknowns at this point, we will know the answer to the first in just a few days and if the latest weather runs are correct, the bull is not being provided with much to sink his teeth into.  Above normal moisture is forecast in both the 6 to 10 and 8 to 11 day forecasts, which would seem to take away the crop deterioration story, if there really was one.  Informa left their bean estimates alone, which were lower than the current USDA and trade idea numbers to begin with.  They have the yield at 44.5 b/p/a for a total production number or 3.7 billion bushels. 

Even though we have not been able to make good on the reversal posted Monday, I would like to think that beans can still post a technical rally between now and the report with room to reach back to the upper end of the trading zone around 11.15.  To push further than that, we will need a surprise from one of the two factors outlined above and right now the odds do not seem to favor that happening. 

Morning Comments - False start?

Aug 05, 2014


December wheat was able to hold onto one of the better gains in weeks, but was still unable to finish above key resistance.  Regardless, we are beginning to make a little headway to the upside, as it appears we are in the process of trying to carve out, but that can take months to form before we actually see a rally of any significance. 

Most of the chatter in this market continues to surround the issues with poor quality wheat in Europe, and had it not been for the better than expected production in Russia, could have been a positive for US wheat.  While it ultimately still could be, the demand is by no means immediate as evidenced by the lackluster export trade. 

Inspections for last week were the lowest in a month at 12.9 million bushels and right at the low end of expectations.  This is the time of year when we should be looking at solid numbers and this figure was over 4 million below the 10-week average.  For the marketing year to date we have moved 146.82 million bushels, 32% below the same period last year and as it stands, we will need to boost the average weekly tally to 17.5 million to reach the USDA target of 900 million.

The winter wheat harvest has reached 90% complete which compares with 83% a year ago and 85% on average.  Spring wheat headed sits right on the average at 97% and conditions were unchanged at 70% good/excellent.

Even though we could not close above resistance yesterday, the overall action in wheat is encouraging.  If we did close above the 5.65 level in December futures it could lead to a quick push to 5.85 but I would not be shocked to see a couple more weeks of sideways choppy action between 5.85 and 5.45.  Eventually I believe we will expand the upper end to 5.95 and possibly even 6.25 but that should take some time.  


The corn market found additional strength as the day wore on yesterday supported by the rally in beans and a little concern about the warm temps to the south and the uncertainly of moisture in the days ahead.  Another few showers would be beneficial to finish out this crop but the big question would appear at this point to be how large is large?  The latest estimate comes from FC Stone and has basically fallen in line with the other recent releases at 172.4 b/p/a with a total production of 14.455 billion.  Informa will release their number later today.

Crop conditions did see a slip of 2% in the good/excellent category to 73%.  While part of this could be related to the drier than desired conditions to the western side of the Corn Belt, this is also a seasonal pattern and we should see the conditions inch lower now through harvest. Corn silking now stands at 90% vs. the normal 88% and in the dough stage 36% compared with a normal 29%. 

We did post the strongest export inspection in a month as we shipped 44.9 million bushels.  The 10-week average has been 40.4 million and the 4-week average 39.05.  Unfortunately this could be too little too late as this brings the year to date tally up to 1.691 billion and to reach the projection of 1.9 billion in the next 4 weeks we would need to step the weekly shipments up to 52.1 million. 

The overnight weather runs do provide potential for moisture across a good swath of the Midwest including some of the recent dry areas and prices have eased a bit overnight.  Information is sketchy so far but harvest is kicking into gear in the Deep South so we should have good updates within the week.  Outside of that, I suspect that corn should remain in a sideways pattern through the reports on the 12th with action to the upside pretty limited. 


As should be obvious, beans are the crop with the most at risk with growing conditions at this point and in turn should be the most volatile and unsettled.  After clicking into a slightly lower low for the move in the Sunday overnight trade went on to post an outside higher reversal on Monday keeping the hope of the bulls alive. 

Other than the short-term oversold technical position, the biggest stimulus was weather concerns as there remain points to the west and south that could use moisture and have been experiencing warm conditions.  The overnight forecasts seem to have alleviated some of these fears and the condition reports reflected nothing as of yet either.  There was no change in any of the condition categories with the good/excellent brackets at 71%.  Many thought we could see a 1 to 2% slip in the rankings.  Beans blooming remain just ahead of average at 85% and the number setting pods reached 57% versus the normal 48%.

Export inspection did not provide any assistance for the bulls as we shipped just 1.4 million bushels this past week.  The year to date total now stands at 1.582 billion and while nothing to sneeze at, it would appear that we will fall short of the current target of 1.62 billion as to reach that number we would need to average 9.4 million per week for the next 4 weeks. 

As I commented yesterday, the bean market is trapped in a trading range with November futures swinging between 11.15 or so to the upper end and 10.55/65 on the lower and coming into this week short-term oversold, we appeared poised for a rebound.  We have unwound some of Monday’s gains overnight night but I suspect we should have room to regroup and make a run for the upper end between now and the 12th.

Morning Comments - Beginnings of a pre-report bounce?

Aug 04, 2014



Rather limited news as we began the trading for this new week with the Sunday night session but we are experiencing a rebound in prices nevertheless.  Wheat still remains with the trading range that we have been developing over the past couple weeks but is already pushing against the upper end.

There is growing discussion of the poor quality of wheat across Europe with the wet late season conditions.  Eventually this could push a little demand for food quality wheat to the US, but overall it should not be a real price mover.  We still have quantity and this would mean they should feed all the more wheat, which is a drag on both wheat and corn markets.  In the mean time wheat from the Black Sea should dominate the world trade as the Ukraine and Russian harvests move forward with solid crops particularly for Russia.

As I stated previously, the strength overnight has already pushed wheat up against recent overhead resistance, which in the December contract sits at 5.65.  If we can poke through that level on a close it should open the door for a bump up to at least 5.84 and possibly the 5.95/6.00.  With the market leaning heavily to the short side, it would not be unreasonable to catch a short-covering bounce into the August 12th report.


The corn market is also experiencing a very minor bounce during the overnight trade to start this new week but the key word there is minor.  At this point, December futures have barely made it back to what had been the contract low before Friday at 3.64 ¼. 

The weather outlook and the upcoming report will most likely be the focus during the next week and of course neither can be predicted with any amount of certainty.  I happen to be out in the eastern part of the country this week where it is raining and the corn that I have seen out here looks much like what I have witnessed in the Midwest; green and lush.  Weather runs from last night indicate that the majority of the middle of the country is in line for moisture through the next week and that temperatures should remain normal to below normal.  That would suggest that the strength witnessed in the overnight trade then is due to the oversold position of the market and a willingness of the shorts to take a little risk off the table in front of the report.  I suspect crop rating this afternoon could reflect a slight deterioration.

More estimates are beginning to be published as Friday the Linn Group issued and estimate for corn of 172.8 for a crop of 14.53 billion bushels.  It would appear that the trade is becoming a bit accustomed to numbers this large.  It is difficult to believe that the USDA will not bump the estimates higher next week but seeing this is not truly a physical measurement you have to suspect they will be somewhat conservative. 

Large managed money remains long in the corn market which is probably somewhat offset by their short in wheat but this being the case, the corn market would seem to be the least likely to witness much short-covering prior to the August 12th reports.  A hiccup in the weather could still provide an interesting day or so of action but overall you have to believe that strength will be brief and that lower lows lay ahead.


November beans finished last week in dangerous territory as we sat right on top of the July 23rd lows and posted the lowest weekly close today.  This left us susceptible to a gap and go break down for the new week but that turned out not to be the case. We did click into a slightly lower low but evidently found no additional sell stops and have posted a somewhat meager bounce since then. 

If there is to be any uncertainly and hence volatility in the weeks ahead it would only stand to reason, it will be in this market.  We have finally entered the key month for crop development and another shot of rain could certainly go a long ways to help with pod fill.  The updated runs on Sunday night suggest that should be the case for a nice portion of the Midwest and upper Midwest. 

The Linn Group issued a bean estimate of 45.8 b/p/a, which was almost identical to the Doanes estimate of 45.9.  Of course both are above the last USDA number of 45.2, which in itself is already a record and of course on record acreage to boot.  This should be even more of a statistical report than corn as with the former, they will pull back ears that are formed, where in beans there is little to actually measure at this time.  I would expect crop conditions to be unchanged to possibly a bit lower. 

Now that we have pushed down to the low side of the trading range and held so far, with a week yet before the reports it would not be unexpected to see a push back against the upper end of the range.  If that is correct, we had better find something supportive in the report or in weather developments or I suspect that then next time down, it could be for the count.

A Look Forward Part II

Aug 02, 2014

A LookForward – Part II

What can past cycles teach us about future profitability?  The research on the subject is vast.  Two individuals from the Kansas City Federal Reserve, Jason Henderson and Nathan Kauffman, recently published a paper titled Farm Investment and Leverage Cycles: Will This Time Be Different? [i]. In the paper, they present a thorough look at the swings of the domestic Ag economy for the past century. Their research outlines the same picture as you see in the 100-year corn chart that I constructed showing major peaks in the farm sector after WWI-1919, WWII-1947, and the Vietnam War-1974/75. These are roughly separated by 30-year intervals.  This pattern provided us with a target for a swing into new high levels of income shortly after entering the new century.  While not precisely at 30 years, this is what was experienced from 2005/06 into 2011/12. Notable from Henderson and Kauffman’s statistics from 1915 to 1919, the prices received by farmers for all commodities doubled, peaking at an average net return per farm of $23,500.  From 1940 to 1947, net returns per farm more than tripled from the lows, and by 1948 reached a new record of $25,000 net. From the late 1960’s into the mid-1970’s we again gained more than doubled, and in 1973 the average net reached $50,000 per farm which is also more than double the previous record.  It should not be a shock to see that the net return to farms doubled again between 2005 and 2011.  But it is interesting to point out that this time, the net fell short of the previous peak and topped out at $45,000 per farm in both 2011 and 2012.  

The cyclical correlations do not stop with income either.  As in each of the previous cycles, farm debt was reduced as incomes rose, but large investments were made in equipment, buildings, and land just as prices were peaking or leveling off.  Consequently, debt ratios begin to move higher. As we are all aware, once the pendulum begins to swing, it does not move back in the other direction quickly.  In the previously outlined instances, the increase in spending that took place during the "good" years did not catch up with the farm sector until prices leveled off. Once they had, the readjustments were stark and punishing to those who believed there was no end in sight to the growth.  In 1921 alone, net farm returns fell 53%.  While they stabilized and rebounded from there, it was not enough to stem bankruptcies, which increased sevenfold as opposed to 1920.  By 1923, farm bankruptcies represented 1 out of every 5 bankruptcies in the US. The post WWII correction was not nearly as severe, as increases in farm debt were much lower than the previous period, but we still entered an era of over 20 years of very stagnant earnings.  Many of us remember the downturn through the 1980’s, which is often referred to as the US farm depression, and by 1985 bankruptcies pushed up to 2.3 per 1,000 farms which eventually reached a pace that was double what they had been when the previous record was set in the 1930’s. It is interesting to note that during the expansion during the 1940’s the investment at the farm level was not in real estate but rather vehicles, machinery, and equipment.  In 1947, expenditures for these items jumped 73%.  Sound familiar? Since 2005, the average annual investment in farm structures has risen 50% above 1990 levels, and over the past decade capital expenditures on tractors are up over 40% compared with the 90’s.

[i] Henderson, J., & Kauffman, N. (2013). Farm Investment and Leverage Cycles: Will This Time Be Different. Economic Review . 

Morning Comments - New month looks just like the old one

Aug 01, 2014



New month, old week and it would appear that no one is interested in rocking the boat this morning.  Wheat is the only market within the grain and soy complexes that is showing any strength, which is quite understandable as it is the only market that would not benefit much if any from the ongoing favorable weather forecasts.  News is quite sparse overall this morning and the biggest headline that I have seen is "U.S. Agriculture Department Unveils Major Overhaul of Poultry Inspection System."  I am sure for those in the poultry industry this important but for the grain markets…not so much. 

There is still discussion about the poor quality of the European crops and the difficulty with harvest but that appears to be countered by the larger expectations for the Russian crop.  Of course, that brings up another question.  With the West implementing sanctions against Russia in response to the Ukraine situation, will that bleed over to grain trade?  I suspect not.  If France can still sell military ships to Russia and Europe needs their energy, I would not suspect anyone is going to mess with food.  The International Grain Council issued updated estimates yesterday and boosted their wheat number 3 MMT to 702 MMT.  This is still lower than the last USDA estimate of 705.

I do not think we should find it a surprise that the wheat market is stable again this morning, as I have pointed out previously we should have already absorbed much of the bearish supply information into current prices.  If correct, we should move into more of a sideways pattern until we flush out more of the world production information of find a demand stimulus that could bounce us away from this price range. 


The corn market has been able to remain above last week’s lows all this week but we may yet test that floor as we finish this current week.  In the overnight trade, we are back down pressing against those lows and with a weekend ahead and basically nothing but a favorable weather forecast, it is difficult to think about who would want to step in front of the price at this point. 

The most recent weather updates indicate moisture falling from Kansas through Minnesota later next week with moderate temperature along.  You could not ask for a much better outlook as we finish pollination and continue ear fill.

The International Grains Council also bumped up their corn estimate, pushing it up 6 MMT to 963 MMT.  The July USDA estimate was 980.96.

As noted yesterday morning, new crop demand has been good but by no means exceptional so not sufficient to stem the negative supply mentality.  We could dip into a slightly lower low in the near-term but I still believe we should see prices move in more of a sideways pattern between now and the August 12th report.  As I have commented in other letters, it would appear that we should eventually have potential to stretch down to the 3.00 level but ideally that would be just a bit further out into harvest. 


The bean market appeared to see a little evening up of positions as we finished the month of July but for this first day of August, bears are back on the prowl.  The weakness this morning just pushes us a little bit closer to the lower end of recent trading, which for November futures is down between 10.65 and 10.55 and realistically has done nothing to shift the near term outlook. 

This market continues to be supported by the consistently solid demand for new crop and the remaining uncertainly about yield potential.  For the demand part of that we of course receive constant updates but for the yield question, that remains the great unknown.  Weather forecasts overall appear favorable for vegetation but if that produces big yields is yet to be seen.  As I commented in the monthly letter yesterday, we do have a cushion with the huge planted acreage and a couple bushel drop in the projected yield would only produce a less negative picture, not a bullish one.  We would have to look for bigger reductions than that to change the overall outlook. 

All that said, it would appear that we should have potential to keep November beans roughly range bound (11.20 to 10.65) between now and the report on the 12th 

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